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When William Lytton arrived at scandal-ridden Tyco International Ltd., in September 2002, he faced a ton of work. As the new general counsel, Lytton inherited an internal investigation of the company’s misdeeds, a lawsuit against a handful of former Tyco officers, and a mountain of routine legal work generated by the conglomerate’s some 2,000 subsidiaries.
There was no shortage of outside lawyers who wanted to help. At the time of former GC Mark Belnick’s resignation, in June of last year, Tyco used a stable of almost 700 firms.
But Lytton didn’t tap any of those firms for his most pressing assignments. “I wanted new faces in here, and I wanted firms that could prove to me that they could handle the work,” says the new GC. He immediately went looking for one that could handle some finance matters, another to serve as acting corporate secretary (when Lytton arrived, Tyco didn’t have one), and another firm to handle several arbitrations involving Tyco executives who had resigned in the wake of the company’s turmoil. By the end of the search, Lytton had signed up three firms. He asked Los Angeles�based heavyweights O’Melveny & Myers and Gibson, Dunn & Crutcher to handle the finance and corporate secretary work, respectively, and Philadelphia’s Morgan, Lewis & Bockius to lead the charge on the arbitrations.
Lytton won’t divulge which Tyco mainstays he spurned (“We may use them again,” he says). But he has no regrets about bypassing them. “I’m sure some of [Tyco's old firms] are a little annoyed with me,” he says. “But I don’t really care.”
If ever a company needed to reevaluate how it managed its legal work, it was Tyco. But the Bermuda�based behemoth isn’t alone. According to Corporate Counsel‘s second “Who Represents America’s Biggest Companies?” survey, Lytton’s experience highlights an emerging trend: new general counsel are cleaning house upon arrival, and quickly fostering relationships with new firms.
The survey asked GCs at the Fortune 250 companies who they were using as “primary counsel” in four practice areas: litigation, corporate transactions, intellectual property, and � in a new addition to the survey this year � labor and employment. A total of 194 companies provided information, mentioning 471 different law firms.
As with last year, businesses were free to define “primary counsel” however they wished, and they were invited to list as many or as few firms as they felt appropriate. And they did. Comcast Holdings Corp., the Philadelphia-based cable provider, reported having only one “primary counsel” for its litigation and corporate work, New York’s Davis Polk & Wardwell. The Atlanta-based Georgia-Pacific Corporation reported using a total of eight firms in those two categories alone.
The data showed several changes over last year’s findings. Most notably, the results reflected a significant amount of turnover among general counsel themselves. Roughly 10 percent of the businesses � 22 of the Fortune 250 general counsel � left their companies last year. Among that group, a dozen reported changing outside counsel in at least one of the four practice areas.
This shift hasn’t knocked the top firms off their perches. On the contrary; blue-chippers like Skadden, Arps, Slate, Meagher & Flom; Sidley Austin Brown & Wood; Jones Day; and Kirkland & Ellis were among those that garnered the most overall “mentions,” as they did last year. Sidley’s showing is especially impressive; the firm picked up 36 mentions, 14 more than last year.
These firms and the other chart-toppers on our list have stayed busy despite a volatile marketplace for legal services. According to Rees Morrison, a legal consultant in Hildebrandt International, Inc.’s Somerset, New Jersey, office, senior management more than ever is asking new GCs to set austere budgets and to justify unexpected expenses. According to Morrison, while big businesses will still pay top dollar for outside counsel to handle a tricky acquisition or a bet-the-company antitrust matter, they’re encouraging their GCs to shop around for firms to handle more “commoditized” work.
To oversee these efforts, companies are hiring in-house lawyers with top skills and, increasingly, previous experience as chief legal officers with their own sets of trusted contacts in the outside counsel world. “Today’s best GCs aren’t just good lawyers,” says Peter Zeughauser, a legal consultant and former general counsel of The Irvine Company Inc., the southern California construction firm. “Folks like Bill Lytton and [Pfizer Inc.'s Jeffrey] Kindler are managers and politicians. They’re not afraid to come in and shake things up.”
Clearing The Decks
Until about a decade ago, many of the nation’s largest companies had close, longtime relationships with their outside counsel. When IBM Corporation got sued or wanted to buy a small mainframe manufacturer, its senior lawyers didn’t think twice: they called New York’s Cravath, Swaine & Moore. When big litigations arose at McDonald’s Corporation, the company relied on Chicago’s Sonnenschein Nath & Rosenthal. The Coca-Cola Company swore by Atlanta’s King & Spalding to handle its biggest deals, and when one of its airplanes crashed, lawyers at The Boeing Company speed-dialed Seattle’s Perkins Coie.
All of those relationships still exist to some degree. And so do countless similar long-standing outside counsel ties across the country. But firms have to work harder to keep them in place. “And that’s especially true when a new general counsel comes in,” says William Lee, the managing partner at Boston’s Hale and Dorr. “If you’re not proactive, you’ll lose the business.”
Proactive or not, a handful of firms were dropped from the “primary firms” lists of several companies that responded both times to our survey. Among them were Akin Gump Strauss Hauer & Feld; Houston’s Baker Botts; Houston’s Vinson & Elkins; and New York’s Weil, Gotshal & Manges. But not all of the delistings were attributable to performance; some were the result of corporate spinoffs. For instance, Baker Botts had long been a primary counsel for Houston-based energy seller Reliant Energies, Inc. (now CenterPoint Energies, Inc.) as well as one of Reliant Energies’ larger subsidiaries, Reliant Resources, Inc. But when Reliant Energies spun off Reliant Resources late last year, Michael Jines, Reliant Resources’s new general counsel, started sending the company’s corporate work to Skadden. (CenterPoint continues to use Baker Botts.)
And it certainly wasn’t all doom and gloom for these firms. For example, V&E’s Joseph Dilg says the firm still does “significant” amounts of work for each of the clients that dropped it from its primary firms list, Reliant Resources, Continental Airlines, Inc., and Halliburton Company.
Why are today’s new general counsel so quick to shuffle their companies’ rosters of trusted advisers? Much of the turnover is due to cost. During the recession of the early 1990s, senior execs realized that by moving work in-house or hiring cheaper law firms, companies could cut millions from their annual legal budgets without sacrificing top-notch legal advice. So either they demanded that their GCs be more cost-conscious or they brought in new chief legal officers to cut outside counsel costs.
That’s the recent experience of Aramark Corporation’s Bart Colli. Three years ago, just after Colli became GC of the Philadelphia-based food-services provider, he entrusted some important international litigation to a couple of American firms � which he declined to name � that had long been on Aramark’s payroll. “They had a lot of institutional knowledge of Aramark,” he recalls. But almost immediately, Colli started getting what he calls “outrageous bills” for small tasks as well as for work he hadn’t authorized. “We weren’t getting the best value out of these firms,” he says. “So we dropped them.” Colli entrusted some of the work to a known entity: his old firm Newark’s McCarter & English, which, according to our survey, has become one of Aramark’s principal firms. With McCarter’s guidance, he sent the rest of the litigation work to two other firms, which picked it up midstream.
Sprint Corporation’s Thomas Gerke has an even itchier trigger finger. He took over the GC slot at the Overland Park, Kansas�based telecommunications giant last April, but has already shifted work away from national firms, like Minneapolis’s Faegre & Benson, to more regional firms like Kansas City, Missouri�based Stinson Morrison Hecker. “As soon as I feel that one of our larger national firms is taking us for granted, I’ll give one of our Kansas City firms a little more work [that otherwise would have gone to a larger firm], and then issue a press release letting everyone know what I’ve done,” he says.
For other new in-house counsel on the survey, just the threat of switching firms gets them the price and service they want. Three years ago, Marc Gary became BellSouth Corporation’s associate general counsel in charge of litigation (Gary also serves as a member of Corporate Counsel’s advisory board). One of his first moves was to tell all of the Atlanta-based company’s outside litigation counsel that despite what they’d done in the past for the Baby Bell, they weren’t guaranteed any future work. “The second they get complacent is the second you get bad service,” Gary says. He adds that all of those firms responded with “top-flight service,” except for one, which Gary declined to name, that he let go two years ago.
General counsel often arrive at their top-dog positions with a sense of precisely who they want as outside counsel. Take Maura Abeln Smith, who, earlier this year, left her post as GC of Owens-Corning to replace Lytton at Stamford, Connecticut�based International Paper Company. Although Smith says she inherited a “stellar” roster of outside counsel relationships from Lytton, one that includes Davis Polk, she still tapped two lawyers she was familiar with, Debevoise & Plimpton’s Meredith Brown and Skadden’s Ralph Arditi, when faced with some recent environmental and securities work. “I knew they’d be responsive, and I knew right away that they were who I wanted,” she says. Smith insists that Davis Polk remains in her stable of go-to firms. “I didn’t replace anyone with anyone else,” she says. “I just added a couple of lawyers to the mix.”
The Charts: All-Round Champs
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